Tempur-Pedic Struggling to Grow Share Amid Lower-Price Competitors
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REPORT Susan Jennings Kantari, [email protected] Tempur-Pedic Struggling to Grow Share Amid Lower-Price Competitors Companies: SCSS, TPX September 25, 2013 R esearch Question: Is Tempur Sealy continuing to lose market share to competitors’ foam mattresses? Summary of Findings Tempur Sealy International Inc. (TPX) is struggling to grow its market share amid competitors with lower price points. The foam mattress trend continues to grow. Eleven of 16 sources reported year-to-year third-quarter growth in foam mattress sales, compared with only four sources reporting increased sales of coil mattresses for the same period. Of the 11 sources reporting higher sales of foam mattresses, only six said Tempur Sealy’s Tempur-Pedic had posted sales growth during the third quarter year to year. Tempur Sealy holds an average 18% of sources’ floor slots. During the past six months, the company’s floor space has increased at six stores, remained the same at seven stores and decreased at one store. Two sources did not comment. Two sources said Tempur Sealy’s summer discounts were its most generous offers yet. The company promoted a $300 gift card or a free twin-size mattress with a larger mattress purchase of $2,000 or more. One source said Tempur Sealy’s marketing campaign has done little to distance it from the competition. One source said mattress sales may slow in line with home sales as a result of rising home interest rates. Background Twelve of 17 sources for Blueshift Research’s June 13 report said foam mattress sales had increased 5% to 15% during the second quarter year to year; only one source reported a decrease in foam sales. Tempur Sealy’s new Tempur-Choice mattress was expected to receive two slots in most sources’ stores, primarily starting in June. However, Tempur Sealy’s second-quarter earnings call provided evidence of less demand for its products, mainly from its Tempur-Simplicity units. Sales fell 4.6% in North America and 2.3% internationally year to year. Tempur Sealy cut its full-year guidance in light of lower demand for its older products, the lack of its usual July 4 lift, and its slower-than-expected rollout of the Tempur-Choice line. The company also stated it will ramp up advertising efforts during the second half of 2013. The latest bedding barometer shows innerspring mattress units and dollars spent rising 1.4% and 6.1%, respectively, They have outpaced specialty mattresses, for which sales fell 5.6% and 4.8% for the first half of 2013. The greater availability of hybrid mattresses paired with the uncertain economy has prompted consumers to trade down at the cost of memory foam and specialty sleep brands such as Tempur Sealy. CURRENT RESEARCH In this next study, Blueshift assessed whether Tempur Sealy would be able to grow its market share amid the rise of competitors offering lower price points. We employed our pattern mining approach to establish two independent silos comprising 16 primary sources (including five repeat sources) and three relevant secondary sources focused on a decline in first-time home buyers and Tempur Sealy offering more discounts during the last two months: 1) Mattress stores (16) 2) Secondary sources (3) 1 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com Tempur Sealy International Inc. Next Steps Blueshift Research will revisit sources to see if their mattress sales have been influenced by rising home interest rates. We also will monitor Tempur Sealy’s promotions and discounts, which reached an unprecedented level this past summer. Finally, we will determine if the Sealy gel memory line can help Tempur Sealy compete with Serta’s iComfort. Silos 1) MATTRESS STORES Of these 16 sources, the ratio was nearly 3-to-1 for those reporting an increase in foam mattress sales compared with those citing sales growth in coil mattresses for the third quarter year to year. Foam mattress sales rose approximately 10% for most of the 11 sources reporting an increase but reached as high as 25% for two others. Sales of Tempur Sealy mattresses increased 5% to 15% for five sources and 30% for a sixth. The company’s third-quarter sales fell for three sources, with two specifying a 10% to 15% decline year to year. Customers still consider Tempur Sealy a premium brand but find the company’s price points hard to swallow. Tempur Sealy offered its most generous discounts yet this summer, according to two sources, who said the company promoted a $300 gift card or a free twin bed with the purchase of a mattress priced at $2,000 or higher. One source fears rising home interest rates could slow the housing market and, subsequently, mattress sales. Another said Tempur Sealy’s marketing campaign has done little to distance the company from its competition. KEY SILO FINDINGS Sales - 3Q foam mattress sales rose 10% yy for most of the 11 reporting an increase; 1 reported flat sales and 1 a decrease. 3 had no comment. - 3Q coil mattress sales rose 10% to 25% for 4 sources, were steady for 8 and decreased slightly for 2; 2 had no comment. - TPX’s 3Q sales rose mostly 5% to 15% yy for 5 sources and 30% for a sixth source, were flat for 1 source, and decreased 10% to 15% for 2 sources (who still reported greater demand for foam mattresses) and an unspecified amount for a 3rd source. 6 sources had no comment. Customer Preference - TPX still is viewed as a premium product, but its price point is a deterrent. Market Share/Competition - TPX holds approximately 18% of sources’ floor slots. - Over the past six months TPX has gained slots at 6 stores, maintained slots at 7 stores and lost slots at 1 store; 2 sources had no comment. - Advent International Corp.’s Serta and Simmons, and Tempur Sealy’s own Sealy are preferred by customers for their lower price points. Pricing - Over the summer TPX offered a free twin bed with the purchase of its mattresses priced at $2,000 or higher. - TPX also offered $300 gift cards with purchase. - TPX remains strict about stores offering discounts. All promotions must come from TPX corporate. - 2 sources said TPX discounts offered this summer were the most generous they have seen from the company. Other - 1 sources said slowing housing sales also may slow mattress sales. - 1 source said TPX’s marketing campaign does not differentiate it from the competition. 2 1 Ferry Building, Suite 255, San Francisco, CA 94111 | www.blueshiftideas.com Tempur Sealy International Inc. 1. Sales associate for Raymour & Flanigan, major East Coast suburb; repeat source Despite offering its most aggressive deals yet, Tempur Sealy continues to lose market share to a growing field of competitors. Comparable third-quarter sales are up 10% to 15% for coil, 5% to 10% for memory foam and 5% for Tempur Sealy year to year. The store increased its overall slots from 57 to 73 in early summer; Tempur Sealy still has the same 10 slots it had a year ago. Customers recognize Tempur Sealy as a higher-priced, better-quality brand, but they are often just as happy with another mattress. Mattress sales received a 15% to 20% sales boost quarter to quarter, thanks to various summer deals. One of them was Tempur Sealy’s free twin bed with the purchase of a mattress over $2,000. The deal gave Tempur Sealy sales a modest 5% to 10% boost compared with the second quarter. Sales . “Mattress sales have increased because there’s a lot of new technology coming out such as gel mattresses and different hybrids of spring and gel and memory foam. That’s been giving customers more options, so they’re more likely to leave the store having found what they wanted in a mattress.” . “Coil mattress sales are up by 10% to 15% this third quarter compared to the last third quarter.” . “Memory foam mattress sales are up 5% to 10% so far in the third quarter compared to this time last year.” . “Tempur Sealy sales are up 5% so far year to year.” . “From the second to the third quarter, Tempur Sealy sales were up at least 5% to 10%. But across the entire bedding department, they probably increased 15% to 20%.” Customer Preference . “Most customers know the Tempur Sealy brand and recognize that if they’re buying one of their mattresses, they’re paying extra for better quality. That Tempur Sealy’s promotion this said, it’s often a matter of preference. A lot of customers are just as happy summer was the most with something else.” generous I have ever seen from Market Share/Competition that company, hands-down. … . “Out of 73 slots total, 10 are for Tempur Sealy—plus one extra for Tempur Sealy’s promotional twin beds, which we’re going to be getting rid of soon. Giving away a free twin-size The promotion began in late June and ended last week.” (See “Pricing” for mattress with a purchase of more information.) any Tempur Sealy mattress . “We have had the same number of Tempur Sealy slots for at least a past over $2,000. … [The year, but the number of slots overall has increased a lot since early promotion] definitely helped summer. I think we’ve added at least a dozen slots.” (In May, this store reported having 57 slots total.) Tempur Sealy’s sales but . “I don’t know of any brands that are taking market share from Tempur probably not as much as they Sealy. I don’t really see Tempur Sealy taking market share from somebody wanted.